Costco Membership Drop an Irksome Sign of Consumer Pullback

By Mitchell Clark, B.Comm. Published : October 11, 2013

If there’s one company that has been a stalwart wealth creator on the stock market it’s Costco Wholesale Corporation (COST).

The company’s been on a roll since the mid-2000s, and up until recently, it reported excellent financial growth in its operations. But its most recent quarterly earnings came in shy of expectations and were a surprise for those who follow the business.

Costco’s been doing well over the last several quarters, and it is still very much a growing corporation. But in the 16 weeks ended September 1, 2013 (the company’s fourth fiscal quarter of 2013), sales came in just shy of consensus, growing five percent comparatively to $31.77 billion.

Earnings barely grew to $617 million, or $1.40 per share, compared to $609 million, or $1.39 per share. Lucrative membership sales were $716 million during the quarter, growing much less than in comparative quarters.

The company incurred higher expenses and long-term debt grew significantly in the most recent quarter. On the positive side, Costco’s cash and short-term investments soared another billion dollars to $6.12 billion from $4.9 billion.

However, shareholders’ equity fell and total liabilities grew quite a bit. You can’t call the company’s quarter a disappointment, since it is still growing, but a dividend increase would have been nice.

This was Costco’s first earnings miss in eight quarters.

Also coming in short of expectations was Family Dollar Stores, Inc. (FDO), whose 2013 fiscal fourth-quarter sales grew 5.8% to $2.5 billion. Earnings grew 26% to $102 million, but management said that comparable store sales were flat, and they struck a cautious tone on fiscal 2014.